Pages

Thursday, January 21, 2016

AGM (Fraser CenterPoint Trust - FCT) + Q1 FY16 Results‏

This is going to be a rather long post as I’ll be covering both the AGM and Q1 results released this evening.

I’ve been to FCT AGM 4 out of the last 5 years so I am pretty familiar with many of the faces around. Last year, I attended the AGM for FCOT which was held in the same venue at Alexandra Point. I guess the objective is to find out and hear right from the horses’ mouth some of the issues and prospect regarding the reits.

The CEO went through some of the performance highlights for FY15 which have been impressive so far in all aspects – increasing DPU, increasing occupancy, increasing NAV, lower gearing and other things.

Then came next the questions and answers which I thought was pretty useful for those who are interested to know the nitty-gritty like me.

Questions & Answers

1.) The first question raised by the shareholder was the increasing presence of today’s e-commerce threat to hard malls shopping. I think this is a valid growing concerns amongst retailers because it is so convenient to purchase things online and much cheaper as well.

The management agreed that online shopping is a threat in today’s environment but they have so far only represents 5% of the total spending pie. In fact, for the past few years, the numbers have not grown exponentially as what was predicted so there might be some truth about having the shopping experience in an actual mall itself, especially for activities involving the F&B, supermarket, etc. The management also explained that they could in fact use this to their advantage. For e.g the implementation of many supermarkets using the order & collect where shoppers still need to go to the actual mall to collect the goods themselves even though they ordered online.

2.) The second question is mall specific for Bedok Point mall. As all investors of FCT knows, Bedok point is so far the only underperforming mall in terms of occupancy and NPI, even though they represent the smallest percentage of the overall portfolio. Occupancy has dropped to 84% and shopper traffic has gone down as well and this has brought some concerns that they will soon lose all competitiveness to their rival next door, Bedok Mall – which is owned by CMT.
The management conceded that the mall is somewhat struggling so far but they are looking to improve as a destination mall for shoppers. To be honest, it is difficult to do so when all the traffics are directed to the bigger Bedok mall next door.

The management went into the nitty-gritty of explaining that the first 3 levels are doing well, and it is only the highest 2 levels that are currently struggling as they were being occupied by a gym and school tenants. They could have significantly increase the occupancy rate by providing lower rents but I think that’s not what they are looking for.

Personally, the impact isn’t felt quite yet because the top 3 malls are performing significantly well but at some point, I think they’ve got to reassess the situation and probably looking to divest the malls to a third party to get the best out of it.

3.) The third question is also specific to an investment they made to Hektar Reit in Malaysia on whether there are more information about how the reit and their malls are performing. Another shareholder also asked later if it is better for FCT to buy into the assets in Malaysia directly instead of owning exposure through the reits.

The management replied that DPU was stable and constant in the past 5 years in Ringgit terms, though due to the weakening of the Ringgit in recent times means that they have booked in translation costs due to the exchange. The management also answered that they are holding the exposure as an investment to associate because it is not easy to own an asset in another country directly without a special purpose vehicle. In the case of Hektar, they are indirectly using them as a vehicle to gain exposure to the Malaysian market.

However, chances to expand beyond the Malaysian market remains slim as they do not have expertise or key players to penetrate the market. The management conceded that Australia remains a more visible option now since their sponsor, FCL has a huge exposure into the Australian market with key know how expertise stationed there.

4.) The fourth question, which I also think is the most important one, is regarding the outlook for the top 3 malls - Causeway Point , Northpoint and Changi City Point.

Causeway Point - There are already a map planned to develop Woodlands as a regional hub by URA in 2020. This will be a massive boost to the mall because you will suddenly have massive office crowd coming to the mall which is already extremely crowded now.

Northpoint - The company is planning to undergo AEI which will commence in March and it will be for a period of 18 months, after which the management is confident of their return on investment. The AEI is commenced now in conjunction with the North Park residences which will complete in 2018. This will bring about massive crowd to the retail component of the malls.

Changi City Point - The ongoing Downtown Line 3 project is underway now and when this is completed, it will bring about massive crowd to the mall as expo will become the main stopover interchange route.

5.) The fifth question is about whether the management will consider the scrip option for dividend given that the trust pays out 100% of distributable income, leaving little to nothing for any expansion or acquisition purpose.

The management replied that they will think about it, but I reckon it will be unlikely given the majority holdings is FCL.

6.) The last question is on the debt profile which is coming due in 2017.

The management responded by saying that they have concluded the refinancing deal and only the documentation is to be finalized. The company will continue to hedge 75% of their cost of borrowings in order to prevent the volatile increase/decrease of interest rate.

Q1 FY16 Results Review

The company also released their Q1 FY16 results this evening so I thought I'll cover that as well.

Net Property Income (NPI) has continued to increase 2% year on year on the back of stronger profile from the top 3 malls. Q1 DPU is at 2.87 cents, an increase 4.4% year on year. They continued to perform remarkably well and is at 100% increase every quarter year on year since IPO. Amazing.

Shopper traffic also increases 8% year on year and are higher than rival malls such as Vivo City and CMT malls. Average rental reversion continues to be strong at 13.7% in Q1 and given the future prospect, we can certainly expect more from it.

Net gearing remains low at 28.3% and is one of the top 3 lowest amongst all the other S-reits.

Interest coverage ratio is stable at 7.04 times so there are no major worries about them not being able to repay the debts. Costs of borrowings remain low at 2.36% for now, though I expect this to increase once they complete their refinancing.

The AEI for Nortpoint which will commence in Mar will see a dip in the occupany rates to about 76% as the company plans to shift out tenants temporarily. During this period, we might see a blip in the numbers so there might be some short term knee jerk reaction when it is due.

I'm quite positive about the company's outlook and will remain vested for as long as they continue their good performance over the years. Should the market presents any opportunity to enter, I will be happy to do so as a shareholder.

They mentioned that the impact will not be as huge as what they previously did to Causeway point, so I'm taking that they are repositioning the tenants out by batches and possibly offering them something more and better meanwhile. There won't be income support during this period but they'll continue to strive to meet their 100% increasing DPU even during AEI.

Thanks for writing this! Not so relevant comment from me but... personally havent been to any of their top 3 malls, but I thought Vivocity was crowded enough, did not think it could be even more elsewhere!